I'm Political Economy editor at Forbes, editor of RealClearMarkets.com, plus a senior economic advisor to Toreador Research & Trading. I have book on how the economy works, Popular Economics: What LeBron James, the Rolling Stones and Downton Abbey Can Teach You About Economics that is set for release in April of 2015. I have a weekly column on Mondays at Forbes.com.

The Economics Of The NFL Through The Eyes Of Brian Billick

After his Baltimore Ravens blew out the New York Giants 34-7 in Super Bowl XXXV, head coach Brian Billick stayed up all night celebrating with friends. Notably, the very next day he was back at work planning for the next season.

Billick knew intimately what those who needlessly worry about income inequality are blind to, that highly remunerative success very much has an ephemeral quality to it. Though his Ravens regularly contended in the ensuing years, and remained an intimidating force in the National Football League (NFL), he coached his last game for them in December of 2007. In a market economy (more on the NFL’s half-embrace of markets later), the pay is high precisely because it can disappear very quickly. Just as the Forbes 400 ‘team picture’ changes with great regularity, so do the coaches and athletes at the top of the NFL pyramid.

Billick is now a game analyst for Fox, and then thankfully for those who want to better understand a league in which he thrived as a coach, in 2009 he wrote More Than a Game: The Glorious Present and Uncertain Future of the NFL. Billick wrote the book because he “wanted to explain the game better to those who don’t fully understand it and, frankly, I wanted to better understand the game myself.” Billick very much succeeded in terms of his perhaps narrow purposes, plus the explanations that underlay More Than a Game are very effective when it comes to shining light on broader economic concepts.

Describing the balance of power in the NFL, Billick writes that “Players play. Coaches coach. Owners own.” He notes that a “good owner isn’t going to win the Super Bowl for you,” but “a bad owner can lose you one, either by undercutting or overruling his front office or coaching staff, or by being so impatient that he sabotages his own team.”

In writing about league owners, Billick happens upon a perhaps unsung factor that has driven the NFL to stratospheric economic heights in modern times. Indeed, throughout the book he writes of ‘old guard’ vs. ‘new guard’ owners; the former mostly the members of the original families who bought teams on the relative cheap. Even though he’s owned the Dallas Cowboys since the late ‘80s, Jerry Jones is very much part of the new guard. Upon arrival in the league, Billick notes that many of the old guard “thought he was the devil incarnate” for going it alone on sponsorships, and other deals meant to achieve a return on what was a very risky investment for him.

Jones has long since been accepted by the league, and as Billick goes on to point out, his “savvy marketing became the model that the rest of the league followed.” Jones’ success is a reminder of how important competition wrought by free trade is. Indeed, it’s usually weak business sectors (think farming, labor intensive manufacturing, etc.) and weak businesses that seek political protection from outside competition and ideas. That’s why they’re weak. That the NFL owners voted Jones into the club ultimately proved beneficial to all of them. One would logically include New England Patriots’ owner Bob Kraft in this, along with Ravens’ owner Steve Bisciotti. The arrival of new competition forces everyone to raise their game (professional golf and Tiger Woods apply here too), so it should be said that absent Jones, Craft and Bisciotti (to name but three), Billick writes a different book about a less prosperous NFL.

Of course it’s in his broader commentary on the league’s ownership and revenue-sharing structure that Billick reveals a possible weakness in his analysis. In his defense, he makes it apparent that he’s not averse to coaching again, as a successful former coach with a Super Bowl ring his odds are good, and so it could be that he was purposely diplomatic here.

Specifically, Billick made plain a high level of sympathy for the old guard owners who sometimes look askance at the new arrivals as individuals who perhaps don’t take the ‘think league first’ mentality of the old guard seriously. Billick seems to agree that the latter is a threat to the NFL’s long-term health, but that’s very much a debatable assumption.

Acknowledging yet again that free trade forces all competitors to lift their game or perish, it can’t be forgotten that Jones’ investment bankers told him he was making a very silly investment when he bet his personal fortune on the Dallas Cowboys. But as entrepreneurs do, Jones aggressively turned a $150 million investment into something that would probably fetch over $2 billion today. The broader point here is that the NFL of 1989 was not the booming NFL of today. The arrival of the new guard forced at least the wise owners to compete such that the league now thrives.

In particular it’s the old guard owners who wax most rhapsodically about revenue-sharing agreements and other rules meant to foster league-wide parity, but then why shouldn’t they? Having purchased (or inherited) teams for the most part acquired at low multiples, they see their net worth skyrocketing as the new guard forces the economics of the NFL into the 21st century. The seen here is a very prosperous league, but the unseen is how very much more prosperous it would be if revenue allotment were more a function of television ratings’ attractiveness (this is not all about market size as Dallas and Green Bay indicate), individual efforts to raise team revenues, and on-the-field success. If so, some of the old guard would have to sell, but as evidenced by the league’s rising fortunes with the arrival of new, ambitious owners, this arguably would foster a scenario of even greater league-wide prosperity.

With investing, regulations needlessly force what stockbrokers, mutual funds and hedge funds would naturally tell their customers absent any rules. Specifically, they remind new entrants that past performance is not necessarily indicative of future performance. Here Billick shines some sunlight on this business truism.

Indeed, free agency in the NFL, while an undeniable good, has exposed general managers (GMs) and coaches as all too human all too often. As Billick notes, the Kansas City Chiefs felt they were a defensive lineman away from the Super Bowl, only to sign Chester McGlockton. The problem was that McGlockton’s performance and stock plummeted upon arrival. Bill Belichick, though much wiser today, once bet the farm while with the Cleveland Browns on Andre Rison.

So while NFL players have correctly sought and won the ability to achieve their market value, the irony here is that GMs and coaches are increasingly skeptical of building teams around past high flyers. Past performance has surely not always revealed itself in positive future returns, much as many investors were burned in the early part of the new millennium after buying Dell and Microsoft.

Billick worked for a brilliant GM in Ozzie Newsome (his first round picks include Ray Lewis, Jonathan Ogden, Ed Reed, Terrell Suggs, and Haloti Ngata – all likely Hall of Famers), yet coaches traditionally are paid three times what GMs are. Billick generously points out that he and Newsome agreed that coaches deserve it for them being on the frontline when it comes to criticism, but here the former head coach was perhaps overly gracious. The reality here is that if a player has made it to Division 1 of college football, or the NFL, this person is already extraordinarily talented. Once there a good coach is seemingly everything. Figure some of Pete Carroll’s best USC teams were with Paul Hackett’s recruits, Nick Saban won at least one title with Mike Shula’s players, and then the New York Giants imploded under Ray Handley after Bill Parcells won a Super Bowl with what was mostly the same team.

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